Proposal to Stabilize iUSD

Temp Check Discussion
1

Greetings, given the current loss of parity of iUSD with the dollar, caused by excessive self-borrowing and the increase in supply, I propose a strategy to address this situation and rekindle demand for iUSD in DEX.

Situation Analysis: Currently, the loss of parity is due to the expanded supply of iUSD by users who excessively self-borrow, with the currency not being actively acquired in DEX.

Solution Proposal:

  1. Focus on iUSD Demanders:
  • Shift INDY rewards from the stability pool to loans on LQ Finance and Lenfi, specifically for those requesting iUSD in exchange for ADA or DJED. This will encourage leveraging and the use of iUSD.
  1. Specific Rewards:
  • Those holding iUSD will receive interest in iUSD and LQ.
  • Those requesting ADA or DJED with iUSD as collateral will earn rewards in INDY.
  1. Incentivize iUSD Purchases:
  • Establish a temporary program that encourages the purchase of iUSD on DEX, perhaps through the distribution of INDY or other rewards to those acquiring iUSD in specified quantities.
  1. Continuous Monitoring and Adjustment:
  • Implement a mechanism for continuous monitoring to assess the impact of these measures on the parity of iUSD. Adjust strategies as necessary to achieve long-term stability.
  1. Inter-Protocol Collaboration:
  • Facilitate collaboration between the teams of LQ Finance and Lenfi to ensure effective implementation of these proposals and optimize results.

Special Consideration: This strategy will be implemented as a temporary solution until iUSD regains its 1:1 parity with the dollar. The goal is to provide a clear incentive to acquire iUSD and discourage excessive self-borrowing contributing to the supply increase.

Example:
No PEG

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image1368×767 59 KB

PEG

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image1371×768 49 KB

  • Redirect 50% of the rewards from the stability pool
  • Redirect 65% of the rewards from the stability pool
  • Redirect 80% of the rewards from the stability pool
  • None
0 voters
2 Likes
2

First of all thank you for taking the time to prepare this solution.

With v2 in the pipeline, redemptions will be activated. The peg will be restored in a blink of an eye.

I think it’s also a good idea to bribe LQ with INDY, but I don’t have the approaches on top of my mind yet.

The list of synthetics will grow in the future, but I’m not sure how we will incentivize those with the current price action.

1 Like
3

we need more options to stabilize the peg of iusd then just depending on RMR.
we have to keep in mind that RMR will restore the peg till 97 cents to a dollar, above that we need to create other pegging options which will create demand for the iassets.

1 Like
4

Exactly, the idea is to create more liquidity for INDY synthetics, in my example I put iUSD.

5

Based on my understanding of V2, the idea of using ADA as collateral from other users to exchange it for iUSD, instead of using DEX, sounds promising. This proposal could be beneficial, especially if it contributes to restoring the PEG.

However, I see a potential drawback in V2 with this suggestion. If a user with a 200% collateral withdraws this collateral (ADA), which acts as iUSD for other indebted users, their collateral would fall below 200%. This could negatively impact those holding synthetic assets like iUSD. While I understand that the user may recover part of their iUSD, this situation would significantly impact the user due to the selling value of their synthetic and its return. We are unaware of the price at which they sold their iUSD, and if it is 0.75 USD, the loss would be substantial, representing a decrease near or exceeding 25% for selling the asset at a low price. Now, if the protocol returns that same iUSD instantly, it would be received 25% more expensive, which would be inefficient and result in a much greater loss.

To better understand the above, when mentioning “0.75 USD as the selling price of the synthetic,” it is necessary to clarify that this is the price at which the user sold the synthetic when in debt. Now, upon receiving iUSD with a value of 1 USD, the user has already incurred a loss by selling the synthetic on the DEX. Upon receiving it back, they will suffer another loss, as they are returning the same asset but at a higher price. In other words, if the ideal price is 1 USD, they initially sold it at a lower value and now receive it back at a higher value. This dynamic affects those who create and change their synthetics, benefiting some while affecting others. Although the problem remains the same, the affected parties change.

Assuming that the end user is willing to accept the loss of collateral and funds, I would propose a slight modification to V2 to make it more favorable. I would suggest that only users with collateral closest to 150%, on the verge of liquidation, and who are interested in exchanging iUSD, cannot use their iUSD to exchange them for ADA if the collateral of the other user is too low. Instead, we could use ADA from users with collateral above 400% or more, from the highest position to the lowest, to stabilize the asset. This could be a more appropriate way to implement this measure.

Additionally, it would be wise to deactivate this option when iUSD has a 1-to-1 value with the dollar and activate it only when it is 10% below the PEG, allowing the market itself to stabilize the price.

1 Like
6

Am I missing this or will the INDY rewards for stakers be affected by this proposals implementation?